Whatever your business, good credit can be essential to its short and long term success.
There are a few similarities, but business credit scores and personal credit scores are not the same thing. As a business owner, it’s important to know the difference. Whether you’re just getting a loan or looking to improve your business’s credit score, this guide covers everything you need to know about business credit scores.
What is a business credit score?
Simply put, a business credit score is a number that reflects the creditworthiness of a business, which depends on several factors. At first glance, this looks a lot like a personal credit score, but it’s not quite the same.
“Business credit and personal credit are indicators of creditworthiness, but business credit is based on the financial history of a business, whereas personal credit is based on an individual’s spending and debt history,” says Jeffrey Bambales, director of marketing and strategic partnerships at Credible.
Business credit scores can affect the reputation of a business and reflect the likelihood that your business will default on a payment. There are several scoring models that you can use to assess the creditworthiness of your business. However, each of these business services has its own method for determining business valuation, including widely varying valuation ranges:
| Service | Score range |
|---|---|
| Dun & Bradstreet PAYDEX Rating | 0-100 |
| Equifax business credit risk assessment | 101-992 |
| Experian Intelliscore Plus | 0-100 |
| FICO SBSS score | from 0 to 300 |
Personal credit scores, which typically range from 300 to 850, are measured on a different scale than business models. In all cases, both personal and across the four business scoring models, a higher score correlates with lower risk in the eyes of lenders.
What factors affect the credit rating of a business?
Business credit scores vary by scoring model, but each uses a few universal factors: payment history, credit usage, and credit age. Another parallel with personal credit scores is that a business’s payment history is the most influential factor in assessing creditworthiness. However, some models consider this more important than others.
Each scoring model is different in terms of the information it collects and how it weights each factor, so a business’s valuation may reflect a different level of creditworthiness from model to model. To better understand, learn how to check your score, learn more about each scoring option, and how various factors such as business size, industry risk, key financial ratios, and a few others apply to your business credit score.
Why credit scores are important for business
Sometimes people cannot avoid using a personal loan to start and run their business, but building a separate business credit score will pay off in the long run. Maintaining a good business credit score has several benefits:
- Good business credit makes financing easierA: Business loans, credit cards, and other lines of credit are easier to get if you have a well-established business loan. Plus, you’re more likely to qualify for lower premiums, better terms, and lower interest rates.
- Save on insurance policiesA: The cost of insurance will likely increase as your business grows. However, you can save money by having insurers reward high credit scores at low rates.
- Make your business look goodA: In addition to lenders and insurance companies, potential investors, vendors and business partners may be interested in a business’s credit score.
- Separate business and personal financesA: By creating a credit profile for your business, you remove some of the personal liability associated with business loans. For tax purposes, keeping track of business and personal expenses will be much easier.
- Increase in credit capacityA: In addition to increasing the likelihood of receiving financing, a high credit score can increase the amount you are eligible to borrow.
How to check business credit history
There are several options for checking the credit score of your business, some of which are free and others require payment. Sites like Creditsafe and Data Axle allow anyone to view a company’s credit history for free, but you can discover so much more to help your business strategy. The price and process varies from service to service, so explore your options:
Dun & Bradstreet PAYDEX
The Dun & Bradstreet PAYDEX model primarily focuses on the payment history of the accounts you have with suppliers and merchants. In addition to the history of timely payments, the PAYDEX scoring model takes into account overdue invoices and invoices sent for collection.
Based on a scale of 1 to 100, D&B groups businesses into three levels of late payment risk:
| D&B PAYDEX score | Level of risk |
|---|---|
| 1-49 | High |
| 50-79 | Moderate |
| 80-100 | Short |
As you can see, the earlier you pay your business bills, the better the PAYDEX score.
As a free way to view and track your score, you can subscribe to D&B’s CreditSignal, a monthly service similar to the free credit monitoring services you can use to monitor personal credit.
To view your credit file and further understand your score, you must submit a DUNS number on the D&B website and subscribe to its Credit Evaluator Plus product, which costs $61.99 per month.
FICO SBSS score
The FICO Small Business Assessment Service (SBSS) ranks applicants based on their likelihood of paying on time. This score takes into account both personal and business credit history, as well as business data such as income, number of employees, assets, and more. There is a mystery in some madness, but it should be a comprehensive financial picture in one bottle.
The Small Business Administration often uses this rate to pre-screen loans it insures. On a FICO SBSS scale of 1 to 300, your business may be automatically denied a small business loan if your score is below 155. FICO SBSS is provided through the FICO LiquidCredit service.
Equifax business credit risk assessment
Like the FICO model, the Equifax score takes into account many factors. The Business Credit Risk Score is measured on a scale of 101 to 992 and predicts the likelihood that a business will experience a serious delinquency of more than 90 days over the next year.
An Equifax credit report can help you identify potential risks to your business’s payment schedule and track your credit activity and financial health. You can check your score through Equifax where you can purchase one of these reports for $99.95 or buy five for the discounted price of $399.95 ($79.99 each).
Experian Intelliscore Plus
Experian Business Credit Scores are slightly different from other models. These assessments focus on three different categories of information:
- Credit information from suppliers and lenders
- Legal documents from local, county and state courts
- Background information about the company, including public records, credit card debt and fees
Experian uses this data to calculate your company’s credit score on a scale of 1 to 100 depending on how much you owe, your payment habits, credit usage, the size of your business, your operating history, and whether you have any lien rights. , judgments or bankruptcy. .
You can check your score by purchasing the report through Experian. Its CreditScore report is available for $39.95, or you can purchase the more detailed ProfilePlus report for $49.95, which includes payment history and request details. Experian also offers subscription options.
Ways to improve business creditworthiness
Improving business credit is not that different from improving your personal credit. The key is to focus on the things you can control.
- Pay on time: Late payments are detrimental to business credit ratings and should be avoided at all costs. To take it one step further, some scoring models reward early payments, so sticking to a tough early payment schedule can help in the long run.
- Get a business credit card and bank accountA: Opening and maintaining a business credit card account can be an easy way to get started. Wise use of your business credit card can help improve your credit score.
- Check your credit reports regularlyA: Regular review of credit reports can help identify factors that degrade a business’s score. It can also lead to the discovery of errors in your business’s credit report, which you can challenge to improve your score. Also, make sure that all invoices you have already paid are included in your report.
- Work with the right suppliersA: An attempt to improve a bad credit score may involve external factors. To make sure your business keeps up, make sure all vendors you work with report payments to credit bureaus.
bottom line
With multiple scoring models and many factors influencing each one, there is no surefire way to improve your business’s credit score. But by sticking to the right financial habits for your business, as if you were doing it yourself, you can easily achieve an authoritative result. And, as you now know, it can help your business get financing easier, increase your credit limit, save on insurance, and generally maintain a good reputation with potential investors, suppliers, and business partners.
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